Susan Shaw highlights a number of current tax issues relevant to the farming community.
31 January tax payments
Farmers who have suffered from the poor 2012 harvest may find themselves short of cash to pay their 31 January 2013 tax bill. This will comprise a balancing payment for 2011/12 and a 50% payment on account for 2012/13 (with a further 50% payment due on 31 July 2013) - both based on the higher than average profits from the 2011 harvest. The problem will be exacerbated if they used cash generated in 2011 to invest in new equipment. You can claim to reduce your 2012/13 payments on account if you expect your income to have fallen, so it makes sense to prepare your 2012 accounts as soon as possible to quantify the claim. If it turns out that you have reduced your payments too far you will be charged non-deductible interest at 3%, but this may be a price worth paying for the cash flow relief. In cases of hardship it may be possible to agree a delayed payment pattern with HMRC. The important thing is to talk to your accountant early in the New Year.
High value residential property
Further to my article in the last bulletin, draft legislation for the annual property tax on residential property, for example farmhouses, worth more than £2m has now been published. Subject to any final tweaks it will come into effect on 1 April 2013 and will apply to companies, collective investment schemes and partnerships that include a company.
The rate of tax is confirmed as follows.
The Government has announced a number of significant reliefs for genuine businesses carrying out genuine commercial activity, including farmhouses, certain employee accommodation and let properties. All these categories are subject to strict conditions which will need to be looked at in detail, but there is at least a measure of comfort for the many genuine UK businesses which own properties in companies and corporate partnerships.
Annual investment allowance
The Chancellor's Autumn Statement brought good news for farmers who are looking to invest in new equipment. Having slashed the annual investment allowance (AIA) – which provides 100% upfront relief on qualifying plant and machinery – from £100,000 to just £25,000 in April 2012, he has temporarily increased it to £250,000 for qualifying expenditure incurred between 1 January 2013 and 31 December 2014. The AIA is available to most businesses, regardless of size, but the maximum qualifying for relief at any particular time could be affected by the accounting year end and so the best advice is to ask your tax adviser to calculate the precise limit before you invest.
Cap on income tax reliefs
Farmers who incur significant losses may be affected by the new restriction on 'sideways loss relief' which comes into effect on 6 April 2013. Briefly, there will be a cap of £50,000 or 25% of income – whichever is greater – on the offset of trading losses, capital allowances on property and qualifying loan interest. The ability to carry forward losses against future profits of the same trade is unaffected, but without careful planning the cap may lead to cash flow problems in the short term.
Capital allowances on polytunnels
Following discussions with the NFU, NFU Scotland and British Summer Fruits, HMRC has softened its stance on some types of polytunnels. Any farmers who have been denied capital allowances in the past should review the position with their advisers. Likewise, if you are planning to invest in new polytunnels it makes sense to check that they will fall within the new qualifying spectrum.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
